Cloudflare Earnings: Strong Revenue Growth and Impressive Customer Adds Mark the Second Quarter

We maintain our $87 fair value estimate for narrow-moat Cloudflare after the firm reported strong second-quarter financial results, with the firm’s top line slightly ahead of our prior estimates. Along with strong quarterly results that showcased the firm’s continued enterprise penetration, the firm’s total customer count (which includes SMB customers) reaccelerated markedly. After this robust set of results, we reiterate our optimism on Cloudflare’s long-term opportunity as a strong cybersecurity player. With an intensifying threat landscape, as evidenced by high-profile breaches at blue-chip companies such as UnitedHealth, we see robust growth in cybersecurity spending over the next five years. As a multimodule security firm, we believe Cloudflare stands to benefit from this increase in security spending more so than point-solution vendors that are at risk of being passed over as firms increasingly consolidate their security spending toward a smaller list of vendors.